TIGTA to IRS: Get Tough on Noncash Charitable Contributions

The Treasury Inspector General for Tax Administration (TIGTA), which provides independent oversight of IRS activities, estimates that over half of individual taxpayers who claim large-dollar noncash charitable contribution deductions on their returns may not be complying with IRS reporting requirements, so it is recommending that the IRS step up its efforts to substantiate such claims.

"IRS controls are still not sufficient to ensure taxpayers are complying with noncash charitable contribution reporting requirements", said TIGTA in a report based on an audit of 2010 tax returns.

That means "taxpayers could be incorrectly reducing their tax liabilities and receiving tax refunds to which they are not entitled", said J. Russell George, the agency head.

TIGTA estimates that more than 273,000 taxpayers claimed about $3.8 billion in potentially erroneous noncash charitable contributions in tax year 2010, which resulted in an estimated $1.1 billion reduction in tax. And a statistical sample of returns that claimed more than $5,000 in noncash charitable contributions found that about 60 percent of those taxpayers did not comply with reporting requirements.

In particular, the report noted that the IRS is not effectively identifying taxpayers who claim deductions for donating motor vehicles, as they are improperly reporting on their tax returns or failing to attach Form 1098-C, Contributions of Motor Vehicles, Boasts, and Airplanes, to their returns.

Indicative of that, efforts by TIGTA to match taxpayer Forms 1098-C submitted with returns in tax year 2011 to those submitted by charities identified as receiving those donations, uncovered 35,846 instances, worth a total of about $77 million, where taxpayers' deduction claims did not correspond with the Form 1098-C filed by those charities that would verify the deduction.

It also found 1,708 instances where taxpayers reported fair market values of the vehicles they donated that exceeded sale proceeds by the charities, with a discrepancy estimated at $2.2 million.

Specifically, TIGTA is recommending that the IRS increase its efforts to identify tax returns claiming noncash charitable contributions that do not include a Form 8283, Noncash Charitable Contributions, or have a qualified appraisal attached, when required.

It also suggested that the IRS revise Form 8283 and develop procedures to match Form 1098-C submitted with individual tax returns to those filed by the recipient charitable organizations.

IRS management agreed with three of the six recommendations in TIGTA's report, but did not agree to develop procedures to match Forms 1098-C submitted with individual tax returns to those filed by charitable organizations.